THE EXPLORERS 2004: Pioneer building an Alaska drilling portfolio Dallas independent opens permanent Alaska office, has concerns about cost of doing business on North Slope Kay Cashman Petroleum News
Ken Sheffield has repeatedly said Alaska is one of four key exploration hot spots for Pioneer Natural Resources. Sheffield, based in Anchorage and president of Pioneer Natural Resource’s Alaska subsidiary, said his company is looking for more drilling prospects in the state.
The Dallas-independent opened a permanent, 15-person office in the ConocoPhillips tower in downtown Anchorage in the summer of 2004.
But Sheffield has been quick to point out that his company’s interest in Alaska could change if the state of Alaska increases the tax burden on the oil and gas industry.
“We came to Alaska because it has a world-class petroleum system. … It’s a great place to find oil, but sometimes it’s not such a great place to make money,” Sheffield said in May 2004 following the adjournment of the Alaska Legislature.
Sheffield acknowledged the state has been “improving the regulatory environment in the last couple of years” since Pioneer first entered Alaska in October 2002.
Nonetheless, the North Slope is challenging for independents such as Pioneer, he said.
“It’s the most expensive basin in the world,” Sheffield said, citing the geologic risk common in any oil province, as well as Alaska’s unique situations that add to the risk, including the high cost of transporting crude oil to West Coast markets; protracted project timelines because of limited winter access; and low activity levels which reduce the number of oilfield service and supply contractors in the state and ultimately drive up costs because of a lack of competition.
The stability of the state’s fiscal policy is also a concern, Sheffield said, and could change his company’s enthusiasm for Alaska.
“I’m concerned about the talk of increasing taxes. It would be hard for us to move forward if there were any new taxes. The margins are too thin on the projects we’re looking at.”
Alaska’s competition Alaska’s competition for Pioneer’s investment dollars — i.e. the company’s other three key exploration hotspots — are the Gulf of Mexico, particularly the deepwater Gulf, North Africa and West Africa, Sheffield said.
In Alaska, Pioneer hopes to build a “portfolio” of drilling prospects: “We’re not just looking to drill one to two wells per year,” he said, noting the company would achieve an “economy of scale” by drilling several wells each year. Sheffield said possibilities for the future include “continued step-out exploration” on the central North Slope, which “offers attractive reserve target sizes for independent companies.”
Pioneer currently has four North Slope prospects that it has either drilled or hopes to drill, including Storms, south of Prudhoe Bay where Pioneer plans to shoot 3-D seismic in the winter of 2004-2005; Gwydyr Bay, north of the ConocoPhillips-operated Kuparuk field; Caribou, which is “north of Point McIntyre on trend with (BP’s) Northstar” (unit); the new Oooguruk unit, which Pioneer successfully drilled the winter of 2002-2005 and, according to Sheffield, expects to sanction for development either in the fourth quarter of 2004 or the first quarter 2005.
Goal to achieve step change One of Pioneer’s goals in Alaska is to “achieve a step change in the North Slope cost structure,” Sheffield said.
“In looking for big reservoirs, you’re going to find small reservoirs,” against which Pioneer is applying what he calls the “independent mindset,” which involves “challenging existing methods.”
One thing that needs to be done, Sheffield said, is to “decrease project cycle times,” from the time of the lease sale until a project is in production. He believes this can be done without jeopardizing the environment.
Leveraging existing North Slope infrastructure is another way to bring down costs — something Pioneer is looking at doing in order to bring the Oooguruk unit online.
More than one Oooguruk development scenario The unit is offshore the North Slope, north and west of, and contiguous with, the ConocoPhillips-operated Kuparuk River unit. Due to a farm-in executed earlier this year by operator Pioneer and partner Armstrong, ConocoPhillips retains the right to participate in any Oooguruk project sanctioned by Pioneer and Armstrong. Pioneer executives have talked about possible production synergies with the Kuparuk unit’s existing facilities versus a standalone production facility.
Pioneer and Kerr-McGee have also talked about developing their two unit discoveries together. Kerr-McGee’s Nikaitchuq unit and Pioneer’s are located within 46,000 acres of state leases pulled together by Armstrong in the shallow waters of Harrison Bay. The acreage forms an arc over the top of the producing Kuparuk River and Milne Point units.
Armstrong enlisted Pioneer and Kerr-McGee as majority owners and operators of exploration units situated on either side of its leasehold. Armstrong first brought in Pioneer as a 70 percent partner at Oooguruk, the unit on the westerly side of the acreage. A discovery was announced there after the companies drilled three wells in the winter of 2002-03.
Armstrong then brought in Kerr-McGee as a 70 percent partner in the Nikaitchuq unit on the east side, where a discovery was announced after drilling two wells in the winter of 2003-04. Separately, Armstrong applied for the Tuvaaq exploration unit on 14,560 acres between Oooguruk and Nikaitchuq, where Kerr-McGee will drill at least one exploration well in the winter of 2004-05.
|